From: Scatena, Pat [pat.scatena@intel.com]
Sent: Monday, December 16, 2002 8:36 PM
To: rule-comments@sec.gov
Subject: Comments re File No. S7-44-02; Insider Trades During Pension
Fund Blackout Periods
December 16, 2002
Jonathan G. Katz
Secretary, U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
rule-comments@sec.gov
Re: File No. S7-44-02; Insider Trades During Pension Fund Blackout Periods
Dear Mr. Katz:
Thank you for the opportunity to comment on proposed rules published in
Exchange Act Release No. 34-46778. On behalf of Intel Corporation, we offer
the following comments with regard to the rule proposals in that Release.
We are sympathetic to the underlying problem being addressed by Section 306(a)
of the Sarbanes-Oxley Act of 2002 and the Commission's release. However, in
crafting its final rules, we request the Commission take into account that
the vast majority of routine, administrative blackouts will occur quietly,
without the simultaneous occurrence of any dramatic events adversely affecting
the company's operations. Consequently, we believe it is not appropriate to
adopt overly draconian measures to address the small minority of situations
where an unforeseen event, such as a sudden stock price decline, does overlap
with the administrative blackout.
Consistency with Department of Labor Rules
In some cases, the Commission has requested comments on whether its rules
should be made more restrictive than the Department of Labor's proposed rules,
for example possibly defining the term blackout period to be shorter than the
three consecutive business days specified in the statute and the DOL's interim
final rule. Without responding to the specifics of each of these comment requests,
we would encourage the Commission to remain consistent with the DOL rules unless
the Commission perceives a compelling need, tied directly to the purposes
underlying the statute, that warrants a deviation. Imposing different rule
requirements will be confusing to issuers, and create additional compliance
risks and burdens.
Irrebuttable Presumption as to Shares Sold
Section 306(a) directs the Commission to adopt rules limiting the sale of
securities acquired in connection with service or employment as a director or
executive officer during administrative blackouts. The irrebuttable service or
employment presumption proposed by the Commission has the effect of an absolute
bar on sales of any shares during an administrative blackout, regardless of how
they are acquired. Under the proposal, if an executive officer holds 2500 shares
acquired through employment as an executive officer and 500 shares acquired through
other means, any attempt to sell the 500 shares during the blackout would be
presumed to be a sale of part of the block of 2500 shares and therefore subject
to profit recovery. This approach exceeds the scope of the statutory language,
and we believe it goes beyond what is necessary to remedy the perceived problems
addressed by Section 306. Therefore, we believe the Commission should address its
concern about the perceived difficulty of tracing which shares were sold another
way. We do not see the difficulty, since directors and executive officers are
already required to trace shares purchased and sold to establish cost basis and
gain/loss for tax purposes. We would suggest that the Commission simply incorporate
into the Form 4 filing rules a requirement to disclose the source of acquiring the
shares when the shares are being sold during an administrative blackout.
Provisions Regarding Exempted Transactions
Proposed rule 101(c)(2) provides that purchases or sales of equity securities
pursuant to a Rule 10b5-1(c) trading plan will be exempt from the blackout
trading restriction provided that "for purposes of this section, awareness of
an impending blackout period ... will constitute awareness of material, non-public
information." The Commission's drafting approach raises unnecessary ambiguity
about whether knowledge of an upcoming administrative blackout is material,
non-public information that would preclude purchase or sale transactions by
anyone who has knowledge of the blackout until the blackout is announced. We
would question a conclusion that knowledge of upcoming administrative retirement
plan blackouts is per se material; if the Commission is in fact saying this is
the case, the Commission should be much more clear about it so that the many
people within the company and external service provider firms who know in advance
about administrative blackouts will be able to plan accordingly. However, we are
assuming the Commission did not have that intention and we therefore request the
Commission modify this provision to state simply that the trading plan has to have
been entered into prior to the executive officer or director having knowledge of
the upcoming blackout.
We would suggest the Commission consider some additions to the list of exempted
transactions. First, the rule should permit companies to grant stock options to
executive officers and directors or enter into other securities-based compensation
arrangements during administrative blackouts, if such grants or arrangements
were part of regularly scheduled activities that happen to coincide with the
administrative blackout. For example, an administrative blackout could overlap
with annual options granted to directors to coincide with the annual meeting
date or options granted to executive officers along with other employees in
connection with annual performance reviews. These transactions do not trigger
the concerns being addressed by the statute. In adopting Section 306(a), Congress
intended to level the playing field between executive officers and rank and file
employees with respect to transactions in company securities, not treat directors
and executive officers more harshly than other employees. By imposing an absolute
ban on grants of equity-based compensation arrangements, even those made pursuant
to broad-based plans in which all employees participate, the Commission has moved
beyond the original intent of Section 306(a).
We further suggest that grants of equity securities in connection with hiring
decisions be excluded. Companies generally do not have the same flexibility with
respect to the timing of grants in connection with hiring decisions as they do
with other grants, which can be structured to avoid administrative blackout periods.
Equity-based compensation arrangements are often viewed as critical components of
compensation packages to senior management employees. As a result, the inability
to make immediate grants of stock options or other equity-based awards may adversely
impact the company's ability to attract the best candidates for a given position.
We believe it is unreasonable to tie issuers' hands in making hiring decisions and
we would request that these grants be exempted.
In addition, we believe that gifts of equity securities as well as involuntary
transactions in which the director or executive officer does not have the ability
to control the timing of the transaction should be exempted. We believe that these
transactions do not present the same opportunities for profit and or personal gain
that were contemplated by Congress. In particular, we believe that transactions
pursuant to qualified domestic relations orders, which are mandated by the courts,
should be specifically exempted since they are not discretionary on the part of
the director or officer and therefore not subject to manipulation.
Notice on Form 8-K
The Commission has proposed issuers be required to file a Form 8-K within two
business days of knowledge of the administrative blackout. Reiterating the views
expressed in our comment letter on the proposed revisions to Form 8-K, we simply
see no need for this type of current disclosure requirement. The Commission appears
to regard administrative blackouts with a much higher degree of significance than
anyone other than plan participants will attach to them when they are announced.
They only become significant to others if an issue regarding the company's
operations subsequently arises during the blackout period. We believe 8-K disclosure
of blackouts will be confusing and potentially misleading to the general investing
public who could attach unnecessary significance to a mundane, routine matter.
On the other hand, requiring notice on Form 8-K at any point prior to when the
company is prepared to communicate to plan participants the full details about
the administrative blackout and its consequences will result in significant
confusion to the plan participants, the very group who will be most interested
in the subject matter. The trigger proposed by the Commission is ambiguous in
requiring notice within two business days of "actual knowledge" of the blackout
period by the person designated to oversee retirement plans for the issuer or its
director of human resources. It will be unclear when the director of HR "knows"
of a blackout in the weeks, and sometimes months, of planning to determine whether
and when a blackout will occur. In addition, at this point, the full communication
materials for plan participants, which are typically accompanied by detailed
internal guidance to managers and human resources on how to answer employee
questions, will not be developed, and the format of an 8-K report is too formal
and unfamiliar to employees to function as a substitute.
We believe it would be a serious error for the Commission to require notice to
the investing public earlier than when the company can possibly be prepared to
give meaningful notice to the plan participants. The only possible significance
that an administrative blackout has to investors who are not plan participants
is a narrow interest in knowing when retirement plan administrative blackouts
have occurred, so that if director or executive officer trading occurred during
the blackout period, and the company fails to bring an action to recover any
profits, the stockholder may bring an action to recover such profits on behalf
of the company under Section 306(a)(2)(B) of the statute. If the Commission
believes this narrow interest justifies public disclosure, we submit that
disclosure in the next 10-Q or 10-K filing should be sufficient. Alternatively,
the Commission could require filing of a newly created Form BTR, either at the
same time when notice is due to plan participants under the DOL rules or within
two days after commencement of the blackout period. Such a form would be analogous
in purpose to reports filed pursuant to Section 16, which are not part of the
Commission's integrated disclosure reporting system. If the Commission persists
in believing Form 8-K is the right form on which to disclose this immaterial
information, then the Commission should make the Form 8-K filing due within two
days after the due date for notice to plan participants under the DOL rules, or
within two days after the commencement of the blackout period.
* * *
Please contact the undersigned at (408) 765-9771 or Cary Klafter at (408) 765-1215
if you would like any additional information in connection with the above comments.
Regards,
Patrice Scatena
Assistant Director of Corporate Affairs
Legal Department
Intel Corporation
408-765-9771 (phone)
408-765-7636 (fax)
pat.scatena@intel.com